Western banks in the US and EU still want to do business with Russia’s second biggest bank, VTB, but tension over Ukraine is stonewalling those eager to work with the bank, according to its head, Andrey Kostin.

“I can say one thing- that in the last few weeks I have met
several bankers from the US and EU that have said they want to
continue to work with us,” Kostin, the bank's President and
Board Chairman, said in an interview with Izvestia.

“They flew in especially to confirm these intentions, so I
would say they are willing to cooperate, that hasn’t changed.
It’s just that our partners can’t loudly publicize their
willingness, because they feel pressured,” the VTB head
said.

The EU and US froze assets and placed visa bans on senior
Russian officials as well as Russia’s fifteenth largest lender,
Bank Rossiya, targeted because it is believed
to be the bank of many senior Russian officials.

US Secretary of State John Kerry has spoken of more sanctions against Russia, as pro-Russian
sentiment in the eastern cities of Kharkov, Donetsk, and Luhansk
heat up.

“Business is a factor that is preventing US and EU
authorities from moving further down the list of sanctions
because businessmen are pragmatic people,” Kostin said.

However, sanctions have made international investors uneasy, and
in the first three months of 2014, more than $63 billion in
capital has flowed out, the same amount that t left during the
whole of 2013, according to Central Bank data.

Capital outflow is a result of Ukraine tensions which have
coincided with a weakening ruble, which has lost more than 10
percent of its value since the beginning of year against the
dollar.

Sanctions were a response to Moscow’s acceptance of Crimea, a
former Ukrainian region, as a new part of Russia. Action in
Crimea has worsened market conditions for Russia’s second-largest
state bank, as investors worry about more sanctions from the US
and EU.

VTB appears to be moving towards more international ruble
payments. Kostin has urged
more ruble-based payments with trading partners in China, as well
as Europe. The move would make the bank less vulnerable to any
sanctions from the US or EU.

VTB opened its doors in 1990 under the name Russia’s Foreign
Trade Bank and was positioned to be a bridge between the Russian
market and foreign investors.

Political motivations

Western financiers are facing pressure not to visit the St.
Petersburg Economic Forum in May. The eighteenth annual forum
draws over 4,000 investors, economic experts, and policy makers
from around the world and is one of Russia’s most important
economic events of the year.

Kostin believes VTB’s London subsidiary may be experiencing
unusual treatment from the Bank of England.

"In the last weeks, we have experienced very strong pressure
from the Bank of England towards our bank VTB Capital Plc in
London," said Kostin in the same Izvestia interview.

"They are trying to make demands which are incompatible with
regular supervisory practices," Kostin said. "It seems
to me that they (the measures) have a more political
motive."

Mr. Siluanov goes to Washington

Russian Finance Minister Anton Siluanov has been in Washington DC
this week for talks on the Foreign Account Tax Compliance Act
(FATCA) which will require foreign banks to share information on
American clients to the US Internal Revenue Service (IRS) to aid
its crackdown on offshore tax evasion.

If a bank doesn’t join the system by July 1 2014, undeclared
American accounts could be subject to a 30 percent tax.
Disagreement over politics in Ukraine could curb these talks, as
last week the US put negotiations with Russia on hold.

To avoid the costly penalty, Russia's Finance Ministry is
currently drawing up its legislation that'll allow Russian banks
give the information to foreign tax tax authorities.

FATСA members will include tax haven destinations like Bermuda,
the Cayman Islands, Ireland, Luxembourg, and Switzerland, as well
as several other European countries like the UK and Sweden as
well as neighboring Canada and Mexico.